Agency problem

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Agency problem

Conflicts of interest among stockholders, bondholders, and managers.

Agency Problem

A situation in which agents of an organization (e.g. the management) use their authority for their own benefit rather than that of the principals (e.g. the shareholders). The agency problem also refers to simple disagreement between agents and principals. For example, a publicly-traded company's board of directors may disagree with shareholders on how to best invest the company's assets. It especially applies when the board wishes to invest in securities that would favor board members' outside interests.
References in periodicals archive ?
More specifically, the analysis reveals that while contemporary anticorruption reforms are based on a conceptualization of corruption as a principal-agent problem, in thoroughly corrupt settings, corruption rather resembles a collective action problem.
Owners benefit by solving the principal-agent problem that bedevils the service industry and by capturing diners who have lower reserve prices for the restaurant experience.
In recent decades, economists have devoted great efforts to the analysis of the principal-agent problem (see, for example, Milgrom and Roberts 1992).
Jensen and Meckling formalized the theory of corporate governance by pointing out the benefit of public corporations in their ability to spread risk among a large pool of well behaved-investors, while allowing professional managers to specialize in the day-to-day running of operations; and providing a accessible analysis of principal-agent problem arising from the potential conflicts of interests between a company's management and its shareholders.
They have imported a legal tool--fiduciary duty--from private law designed to combat a governance problem absent from direct democracy: a principal-agent problem.
The basic idea--that managers have an information advantage and that this gives them the opportunity to take self-interested actions--is the standard principal-agent problem (Stiglitz (25)).
Foreign aid suffers from a principal-agent problem, in which organizations prioritize donors' political and commercial interests over recipients' needs.
government also faces a fundamental principal-agent problem when providing arms to other governments and groups.
Spatial models miss the mark by failing to recognize that the confirmation process is both a political negotiation and a principal-agent problem.
This principal-agent problem applies elsewhere in energy, too.
If you think that the power of the servant is not a form of power at all, then maybe you should spend a little time talking to someone who studies administrative law or, indeed, anyone who has written on the principal-agent problem.
According to Edward Rock, the issue that has concerned scholars and practitioners of corporate governance and corporate law for decades, namely, the principal-agent problem between shareholders and managers, has been solved.

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